Evening Market Update

Profit-Taking After Strong September Move

Stocks fell after challenging the flatline in early trading, as traders booked some profits after a strong advance during the month of September, and as equity and US economic news was relatively sparse on the day. Even an increase in earnings guidance from Dow member Hewlett-Packard Co and bullish commentary from FedEx were unable to prompt a rally in stocks today. In other equity news, Family Dollar Stores Inc and Thor Industries Inc beat the Street, while Green Mountain Coffee Roasters Inc announced an SEC inquiry into its revenue recognition practices and the company said it discovered an “immaterial accounting error” regarding a margin calculation, and Nintendo cut its annual forecast. Treasuries were lower despite a decline in mortgage applications.

The Dow Jones Industrial Average fell 23 points (0.2%) to close at 10,835, the S&P 500 Index lost 3 points (0.3%) to 1,145, and the Nasdaq Composite declined 3 points (0.1%) to 2,377. In modest volume, 1.0 billion shares were traded on the NYSE and 2.1 billion shares were traded on the Nasdaq. Crude oil rose $1.68 to $77.86 per barrel, wholesale gasoline gained $0.04 to $1.98 per gallon, and the Bloomberg gold spot price moved $0.10 higher to $1,309.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 0.3% to 78.74.

Dow member Hewlett-Packard Co. (HPQ $43) issued full-year guidance for its fiscal year 2011, where the company expects EPS ex-items to be in a range of $5.05-5.15, with revenues forecasted to come in between $131.5-133.5 billion. According to Reuters, analysts were expecting the company to post EPS of $5.00 and revenues of $131 billion. Shares rose.

FedEx Corp (FDX $86) shares advanced after the company said its express business was on track for double-digit margins, without putting a time-frame for the goal, and the company announced price increases for some services.

Family Dollar Stores Inc. (FDO $44) reported fiscal 4Q EPS of $0.56, five pennies above the consensus estimate of analysts, with previously reported revenues increasing 8% year-over-year (y/y) to $1.96 billion matching the Street’s estimates. Same-store sales—sales at stores open at least a year—gained 6.1% y/y due to increased customer traffic, with sales in consumables being the strongest. The discount retailer also announced that its Board of Directors authorized the company to purchase $750 million of its common stock, canceling previous authorizations. FDO shares were higher.

Shares of Nintendo Co. (NTDOY $33) fell solidly after the world’s largest maker of video-game consoles cut its annual profit forecast, as the recent surge in the yen dampened its outlook, and after the company said its newest handheld game device, the Nintendo 3DS, will be delayed until February—after the holiday shopping season—due to “release conditions” for the handheld game player.

Green Mountain Coffee Roasters Inc. (GMCR $31) was down over 15% after it announced that the US Securities and Exchange Commission is conducting an inquiry believed to be focused on concerns about its revenue recognition practices and the company’s relationship with one of its vendors. Also, GMCR announced that in connection with the preparation of its financial results for its 4Q, it discovered an “immaterial accounting error” relating to the margin percentage it had been using to eliminate the inter-company markup in its K-Cup inventory balance at its Keurig business unit. The company said the accounting error arose during fiscal 2007 and said there is a cumulative $7.6 million overstatement of pre-tax income as of June 26, 2010.

Thor Industries Inc. (THO $33) rose nearly 15% after the recreation vehicle (RV) maker reported fiscal 4Q EPS of $0.78, well above the $0.63 that the Street had expected, with revenues jumping 51% y/y to $664 million, inline with analysts’ forecasts. THO said its margins improved due to cost-cutting and process efficiency efforts. The company said total RV segment sales were up 67% y/y, with towable RV sales rising 61% and motorized vehicles surging 99%. THO added that its bus segment continues to perform well amidst tenuous market conditions.

Mortgage applications tick lower on light economic docket

The lone report on today’s US economic calendar was the MBA Mortgage Application Index, which fell 0.8% last week, after the index that can be quite volatile on a week-to-week basis, declined 1.4% in the previous week. The dip came as the Refinance Index fell 1.6%, which offset a 2.4% increase in the Purchase Index. The decline in the overall index came despite a 7 basis-point drop in the average 30-year mortgage rate to a new record low of 4.38%. Treasuries were higher, with the yield on the two-year note flat at 0.43%, the yield on the 10-year note rising 3 bps to 2.50%, and the 30-year bond yield advancing 2 bps to 3.68%.

Tomorrow, the US economic calendar will begin to heat up, headlined by the final reading of 2Q gross domestic product (GDP), expected to be unrevised at a 1.6% quarter-over-quarter (q/q) annualized rate, after expanding by 3.7% in the first quarter. The final report on GDP typically does not change much from the second reading, and economists are expecting personal consumption to remain at 2.0% and no adjustments to inflation readings, with the GDP Price Index at 1.9%, and the core PCE Index, which excludes food and energy, at 1.1%.

Other releases on the US economic calendar tomorrow include weekly initial jobless claims, expected to decline to 460,000 from 465,000, and the Chicago Purchasing Manager survey of manufacturing and services sectors, which is forecasted to decline to 55.5 in September from 56.7.

European debt concerns linger despite reports confidence rose

Sovereign debt concerns lingered amid protests in Spain, Belgium, Portugal, Greece and Ireland to austerity measures and as Ireland was a topic of news yesterday after Standard and Poor’s said the total cost of bailing out nationalized lender Anglo Irish Bank Corp. could exceed 35 billion euros ($47 billion), which could lead to further ratings downgrades, and Fitch said downgrades were possible. The Irish government is expected to update its estimate of the bank’s needs this week.

Elsewhere, euro-zone economic confidence for September unexpectedly increased, while euro-area consumer confidence remained unchanged, and the UK reported a larger-than-forecasted rise in UK mortgage approvals.

Other reports from the euro-zone economic calendar included: UK consumer credit unexpectedly falling in August, French consumer confidence improving in September, Italian business confidence coming in below expectations and the nation’s producer prices rising by a smaller amount than anticipated, Spain’s consumer prices growing at a cooler rate than anticipated, while separate reports showed Spanish retail sales fell more than forecasted and the rate of decline in housing permits in the nation increased.

The Bank of Japan released its 3Q Tankan Large Manufacturers Index, showing that confidence in the group improved from 1 in 2Q to 8, and compared to the 7 reading that economists had expected. The BoJ’s report is conducted by surveying more than 10,000 companies and a positive reading means more businesses believe their business will improve compared to those that expect a decline. However, Bloomberg noted that this was the smallest increase in the survey since early 2009, and a separate measure of manufacturers’ outlook for the December reading fell from 3 to -1, versus the forecast that called for it to remain at 3. Meanwhile, the same survey of the non-manufacturing sector showed current sentiment moved from -5 to 2, compared to the -2 reading that was expected, while the outlook portion of the survey remained in negative territory but was better than anticipated.

Elsewhere in Asia/Pacific, the Conference Board’s Leading Index for Australia improved in July, and the HSBC report on Chinese Manufacturing PMI improved from 51.9 in August to 52.9 in September, driven by new orders rising by 1.7 points to 54.4.

International reports tomorrow include Japanese retail trade, industrial and vehicle production, and housing starts, Australian building approvals, South Korean industrial production, CPI and leading index. In Europe, scheduled announcements include euro-zone CPI, UK house prices, French PPI, Italian CPI and German employment. Elsewhere, Canada will release its GDP for July.